Windrose Consulting Group’s Response to Medicaid’s Proposed Changes to Best Price Calculations
What Drove CMS’s Proposed Change to Value Based Agreements?
In recent years, there has been a growing interest between pharmaceutical companies and payers to implement Value Based Agreements (VBAs) based on clinical outcomes. VBAs are typically applied when access is not attained through “standard” value communication and negotiation, driven by uncertainties around the clinical evidence and / or financial impact of the drug in question. As more and more curative and transformative therapies such as gene therapies enter the market, payers are looking for innovative ways to pay for these next-generation medicines, which are often accompanied with an astronomical price tag.
Luxturna, a gene therapy for retinal dystrophy, is priced at $850,000 per patient, while Zolgensma, which is indicated for children with spinal muscular atrophy (SMA), is priced at $2.125 million per patient. Given the high cost of these treatments, insurers are looking for ways to link payments to outcomes, paying only for those patients that respond.
Medicaid Best Price Calculations
Although outcomes-based agreements have the potential to address payer uncertainty around the value of high cost treatments such as Zolgensma, manufacturers have typically been hesitant to implement them due to their impact on Medicaid’s Best Price. Medicaid’s Drug Rebate Program was introduced to ensure that Medicaid’s net prices are equal to or lower than the lowest price made available to any purchaser. This incorporates all relevant discounts and rebates such that through Best Price, Medicaid receives a “unit rebate” on every unit purchased.
The caveat with Medicaid’s Best Price is that it is based off the net prices offered in the previous quarter; therefore, if price is tied to outcomes, a negative outcome for one patient, or for one unit of drug, may result in a significant rebate (sometimes as much as 100%). For example, an outcomes-based agreement for a small patient population, or a sparsely used treatment, may have a significant impact on Best Price when only 2-3 patients in a plan are treated per quarter, and 1 patient does not respond.
The Centers for Medicare & Medicaid Services (CMS) recognizes the importance and value of VBAs and acknowledges the uniqueness that each VBA could have on a manufacturer's calculation of its Best Price and Medicaid drug rebate obligations. Therefore, CMS is proposing a new rule that would allow manufacturers to recognize VBA’s as a bundled sale across payers. In this instance, all discounts and rebates that are linked to outcomes for any one particular drug will be accounted for across every unit of drug sold (rather than as a proportion of the number of unit drugs sold to one single payer). This distributes the discount over all the units sold under the VBA in the specific rebate period, and would not reset the manufacturer's Best Price based upon the ultimate price of one unit of a drug.
Ultimately, this minimizes the impact that a single negative outcome could have on a manufacturer’s Best Price and enables them to offer more attractive or aggressive outcomes-based agreements in the future.
Implications of CMS’s Proposed Change to Best Price Calculations
While CMS’s proposed change offers payers a way to negotiate more outcomes-based agreements with manufacturers, payers may remain skeptical when considering the general application of VBAs to therapy areas that are predicated on chronic, rather than curative treatments.
The treatment of diseases such as rheumatoid arthritis or cancer is often founded on therapies that span several indications; therefore, volume becomes a key tool for payers when negotiating price and access. Indeed, several advanced treatments for inflammatory diseases, such as rheumatoid arthritis and psoriasis (e.g. Humira, Stelara), already provide significant traditional commercial rebates for preferred access. When these rebates are applied to a high volume of patients, they are likely to have a greater impact on Best Price than any outcomes-based agreement ever would, impeding their uptake. As such, even a significant outcomes-based agreement would not likely impact Medicaid’s Best Price (even based on the current calculations), as Best Price is calculated for all patients within a plan, and a poor outcome for one patient would be averaged across all patients.
What Does the Future Look Like?
The gene therapy pipeline is becoming increasingly crowded, and with more therapies expected to enter the market, payers and manufacturers will be looking toward innovative payment models that may mitigate uncertainty around clinical outcomes, response rates and durability of response.
While the proposed changes are a step toward pricing therapies based on effectiveness rather than volume, there is still a long way to go. Payer receptivity to outcomes-based agreements will remain dependent upon their perceived value, as well as their willingness and ability to implement. At the moment, many payers do not have the infrastructure to collect and monitor detailed clinical data for large volumes of patients. Moreover, the clinical outcomes being measured are often too subjective, and the data collection onus is on physicians, who typically gain limited benefits.
If the proposed Best Price changes are approved, the appetite for payers and manufacturers to implement outcomes-based agreements in the US is expected to increase. In the short term, they will continue to be most applicable to the most innovative (often low volume) technologies. However, as comfort levels and data collection capabilities increase, there will likely be a trickle down to higher-volume and even more commoditized therapy areas, as long as the potential gains outweigh those of existing contracting agreements. Ultimately, VBAs can be an invaluable access tool if applied correctly, and the viability of such agreements should be assessed early as part of any market access strategy.
Get in touch to learn more, or discuss how we can help you.
Adam Foster: adam.foster@windrosecg.com
Kate Hogan: kate.hogan@windrosecg.com
